Executive Information Systems and Metrics

Source: Decision Support Systems in the 21st Century, 2nd Edition by George M. Marakas

MGS 8020 Methods of Business Intelligence

1

An EIS is …

 An

EIS is a special type of DSS designed to support decision making at the top level of an organization.
 An

EIS may help a CEO to get an accurate picture of overall operations, and a summary of what competitors are doing. These systems are generally easy to operate and present information in ways easy to quickly absorb (graphs, charts, etc.).

The EIS will allow the executive to drill down from any figure to see its supporting data.

The executive can select a level of detail (for example, sales by state) if further investigation is needed.
 

This top down approach should lead to better decisions.
MGS 8020 Methods of Business Intelligence

2

Executives are different because …

      

They are enterprise-oriented in thinking The possess the broadest span of control They are responsible for establishing policy They represent the organization to the external environment Their actions have considerable financial and human consequences Disturbance management may require around-the-clock attention.

Entrepreneurial activities require the executive to predict changes in the environment. Resource allocation tasks require the manager to choose when and where the limited resources are deployed.
 

Negotiation requires up-to-the-minute info to help build consensus.
MGS 8020 Methods of Business Intelligence

3

42% Entrepreneurial Activites. 17% Handling Disturbances. 6% Negotiation.Executives typically spend their time … Other. 32% MGS 8020 Methods of Business Intelligence 4 . 3% Resource Allocation.

MGS 8020 Methods of Business Intelligence 5 .  Negotiation requires up-to-the-minute info to help build consensus.  Resource allocation tasks require the manager to choose when and where the limited resources are deployed.Executives are different because …   Disturbance management may require around-the-clock attention. Entrepreneurial activities require the executive to predict changes in the environment.

 Information about markets. Information that represents key business performance indicators MGS 8020 Methods of Business Intelligence (metrics) 6 .   The information used is often short-term and volatile. customers and suppliers is valuable in determining strategy.  The information required is often spread across several computer systems and located throughout the organization.Types of information executives use  Accounting systems that relate revenue to specific operational areas are more important than traditional accounting systems.

 A key issue is to be sure that the EIS components optimize and conform to the organization’s computing resources. MGS 8020 Methods of Business Intelligence 7 .EIS hardware components  An EIS requires no specific or unique hardware.  The system must be configured so that the resources are well-matched to the executives using them.

 Lotus Notes is a good example. software is usually highly specialized to the problem domain. and customized modules to meet specific needs. or can accommodate third-party plug-in modules.  SAS is another robust system. [SAS interactive tour]  MGS 8020 Methods of Business Intelligence 8 .  This specialization is often achieved by using off-the-shelf components for the EIS backbone.EIS software components  In contrast to hardware. It can be used alone.

Technological limitations: the EIS needs to be seamlessly integrated into the company’s current IT architecture.000 with annual operating costs of $200.EIS limitations  Cost: a 1991 survey showed an average development cost of $365. MGS 8020 Methods of Business Intelligence 9 .000. but higher $$.  Organizational limitations: the organizational structure might not be right.   Proportion still holds today. so it is a formidable challenge to the designer.

well-established reporting cycles. MGS 8020 Methods of Business Intelligence 10 .Organizational limits  Agendas and time biases: the EIS represents only part of executive’s total agenda. and it may become easy to be overly reliant on it.  Managerial synchronization: heavy reliance on the timely. leading to less stability in the organization. EIS reports may disrupt stable. ad-hoc.  Destabilization: fast EIS response may cause the executive to react too swiftly.

Executives are different because …  Lack of management support      Political problems Developer failures Technology failures Costs Time MGS 8020 Methods of Business Intelligence 11 .

EIS of tomorrow The intelligent EIS: advances in AI technology will be deployed in the EIS  The multimedia EIS: multimedia databases will allow future integration of text. voice and image  The informed EIS: future EISs will make wider use of data external to the company  The connected EIS: high-bandwidth communication allows greater interconnectivity  MGS 8020 Methods of Business Intelligence 12 .

Performance Management: The Balanced Scorecard Purpose of Balanced Scorecard: A method of implementing a business strategy by translating it into a set of performance measures derived from strategic goals that allocate rewards to executives and managers based on their success at meeting or exceeding the performance measures. MGS 8020 Methods of Business Intelligence 13 .

1996) Reasons for the Need of a Balanced Scorecard 1. It is important to look at the means used to achieve outcomes such as ROA. Focus on traditional financial accounting measures such as ROA. EPS gives misleading signals to executives with regards to quality and innovation.Performance Management: The Balanced Scorecard (Source: Kaplan & Norton. MGS 8020 Methods of Business Intelligence 14 . ROE. not just focus on the outcomes themselves.

Performance Management: The Balanced Scorecard (Source: Kaplan & Norton. Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business. MGS 8020 Methods of Business Intelligence 15 . 1996) Reasons for the Need of a Balanced Scorecard 2.

(Example: controls in jet cockpit for pilot) MGS 8020 Methods of Business Intelligence 16 . 1996) Reasons for the Need of a Balanced Scorecard 3.Performance Management: The Balanced Scorecard (Source: Kaplan & Norton. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly.

Too many measures.Performance Management: The Balanced Scorecard (Source: Kaplan & Norton. can confuse and distract an executive from focusing on important strategic priorities. 1996) Reasons for the Need of a Balanced Scorecard 4. such as hundreds of possible cost accounting index measures. The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy. MGS 8020 Methods of Business Intelligence 17 .

1996) 1. Financial: How do we look to our Shareholders? 2. Customer: How do our Customers See Us? 3.Performance Management: The Balanced Scorecard Balanced Scorecard Perspectives (Source: Kaplan & Norton. Internal Business Process: What should we do that is Excellent? 4. Employee and Organization Innovation and Learning: Can we continue to Improve and Add Value? MGS 8020 Methods of Business Intelligence 18 .

1996) Outcomes Cycle Times Customer Satisfaction Customer order fulfillment Product assembly Quality cycle time Defect rate Scrap rate ROA EVA EPS Manufacturing Unit Costs MGS 8020 Methods of Business Intelligence 19 .Performance Management: The Balanced Scorecard Drivers (lead indicators) Moderators (lag indicators) (Source: Kaplan & Norton.

1996) Drivers (lead indicators) Employee Satisfaction Moderators (lag indicators) Employee Retention Rate Revenues Product and Process Innovations Outcomes Growth Employee Suggestions MGS 8020 Methods of Business Intelligence 20 .Balanced Scorecard Chain of Causality of Performance Measures (Source: Kaplan & Norton.

1996)  Financial measures are outcomes that represent the executive’s success at achieving strategic performance goals Financial measures are influenced by the Stage of the Life Cycle which reflects different strategic priorities  MGS 8020 Methods of Business Intelligence 21 .Financial Measures & the Balanced Scorecard (Source: Kaplan & Norton.

Financial Measures & the Balanced Scorecard (Source: Kaplan & Norton. 1996) Life Cycle Stage Growth Sales Growth Revenue Productivity Generate new accounts & increase market share Sustain/Maturity ROCE EVA Harvest/Decline Cash Flow Reduce Unit Costs Obtain immediate payback on investments from cash cow Earn excellent return on capital invested MGS 8020 Methods of Business Intelligence 22 .

1996) Different Customer Models Business Business Relevant Customer Metrics Inventory cycle time Quality defect rate Customer Distributor satisfaction Customer satisfaction Distributor price margin Business Distributor/Dealer MGS 8020 Methods of Business Intelligence 23 .Customer Measures & the Balanced Scorecard (Source: Kaplan & Norton.

1996) Different Customer Models Business Customer Relevant Customer Metrics Customer order fulfillment cycle time Customer satisfaction Customer price margin MGS 8020 Methods of Business Intelligence 24 .Customer Measures & the Balanced Scorecard (Source: Kaplan & Norton.

Internal Business Process Measures and the Balanced Scorecard (Source: Kaplan & Norton. 1996) Internal Business Process Measures      Quality Yield Throughput Cycle time Cost efficiency     Order Fulfillment Procurement Repair service quality/downtime Warranty quality MGS 8020 Methods of Business Intelligence 25 .

1996) Model of Internal Business Process Logistics Customer Need Identified Innovation Process Operations Post-Sale Process Service Process Customer Need Satisfied Identify Market Create Product Build Product Deliver Product • Delivery Cycle Time Service to the Customer • Service Satisfaction Relevant Metrics: • Development • Quality Cycle Time Defects • MCE MGS 8020 Methods of Business Intelligence 26 .Internal Business Process Measures and the Balanced Scorecard (Source: Kaplan & Norton.

implies inefficient process 1. implies less wasted time.Internal Business Process Measures and the Balanced Scorecard (Source: Kaplan & Norton. 1996) Manufacturing Cycle Effectiveness (MCE) MCE = Processing Time Throughput Time Throughput Time = Processing time + inspection time + movement time + waiting/storage time MCE MCE 0. greater efficiency MGS 8020 Methods of Business Intelligence 27 .

 They nurture the other 3 areas MGS 8020 Methods of Business Intelligence 28 .Employee and Organization Capabilities for Innovation and Learning Measures (Kaplan & Norton. 1996) What are employee and organization capabilities for innovation and learning measures?  Represent ways to improve the other 3 scorecard outcomes or measures.

1996) Employee Measures Employee satisfaction Employee retention Employee productivity Learning Measures  Employee skill levels (certification rate)  # suggestions per employee  Employee learning curve (time to reach acceptable level of output or quality) MGS 8020 Methods of Business Intelligence 29 .Employee and Organization Capabilities for Innovation and Learning Measures (Kaplan & Norton.

Balanced Scorecard: Cascading Goals Customer Satisfaction Corporate SBU Retail Store # Employee Suggestions Corporate SBU Department Team ROCE Corporate SBU MGS 8020 Methods of Business Intelligence 30 .

Incentive Compensation for Executives with the Balanced Scorecard     Executive Bonus Pool is designed as a percentage of Base Salary The bonus pool represents potential earnings from the bonus for an executive if all performance measures are achieved Partial success with meeting performance measures results in the allocation of a bonus representing a lesser amount of the total potential bonus. Range of bonus equals 0 to 100 percent of salary depending on success of CEO performance. Example: The bonus pool for a CEO equals 100 percent of salary. MGS 8020 Methods of Business Intelligence 31 .

satisfaction survey Weighting 25% 15% 10% 10% 10% 10% 10% 5% 5% Customer (20%) Internal (20%) Process Innovation (10%) and Learning MGS 8020 Methods of Business Intelligence 32 .Example: Automobile Company Balanced Scorecard Reward Matrix for Bonus Category Financial (50%) Measure EVA Unit Profit Market Growth Customer satisfaction survey Dealer satisfaction survey Above average rank on industry quality survey…… Decrease in dealer delivery cycle time……….. Suggestions/employee Emp.

What if executives or managers sub-optimize and only focus on categories in the reward matrix with the largest payoff – such as EVA and Customer Satisfaction? MGS 8020 Methods of Business Intelligence 33 .The Balanced Scorecard Critical Thinking Questions 1. What happens to the balanced scorecard when the strategy changes? (example: moving from a “growth” to an “extract profits” strategy) 2. How should resistance by executives or managers to new measures be handled? 3.

H. process and use the data  MGS 8020 Methods of Business Intelligence 34 .collect. waste reduction.Metrics attributes (K. and actions Contribute to organizational direction and control Collaboratively developed by those who provide . dependability. Rose. strategy. timeliness)   associated with internal work that address system cost. innovation. not snapshots) Provide information directly at level they are applied (no further processing)    Linked to business mission. team work. 1995)  Customer-centered indicators that provide value to customer (quality. customer satisfaction  Measure performance across time (trends.

0% Sample Productivity Metric Learning Organization Productivity Metric Res ource Hrs per Ins truction Hr Developed 2004 YTD: 58 hr / hr 2004 Target: 40 hr / hr MGS 8020 Methods of Business Intelligence 35 .Sample scorecard 40 30 20 50 60 70 80 20 30 40 50 60 70 80 10 90 10 90 0 100 0 100 Sample Quality Metric Learning Organization Quality Metric 2004 YTD: 79.5% 2004 Target: 80.

Sample productivity indicator metrics 40 30 20 50 60 70 80 400 300 200 500 600 700 800 40 30 20 50 60 70 80 10 90 100 900 10 90 0 100 0 1000 0 100 Customer Service Productivity Metric Sampleper Instruction Hr Developed 1 Resource Hrs Business Unit 2004 YTD: 48 hr / hr Productivity Metric 2004 Target: 40 hr / hr Resource Hrs per Instruction Hr Developed Sample Business Unit 2 2004 YTD: 625 / hr Productivity hrMetric 2004 Target: 400 hr / hr 40 50 E-Learning Productivity Metric Resource Hrs per Instruction Hr Developed Sample Business Unit 3 2004 YTD: 38 hr / hr Productivity Metric 8 hr / hr 2004 Target: 40 hr / hr Enterprise Productivity Metric 40 30 20 50 60 70 80 60 70 80 30 20 90 10 10 90 0 100 0 100 Leadership Metric SampleProductivity Developed Business Unit 4 Resource Hrs per Instruction Hr 2004 YTD: 66 / hr ProductivityhrMetric 8 hr / hr 2004 Target: 40 hr / hr Resource Hrs per Instruction Hr Developed Sample Business Unit 5 2004 YTD: 78 hr / hr Productivityhr Metric 8 hr / hr 2004 Target: 40 / hr Six Sigma Productivity Metric MGS 8020 Methods of Business Intelligence 36 .

0% 2004 Target: 80.0% quality metric 2004 Target: 80.0% Enterprise Quality Metric Business unit 3 2004 YTD: 76.0% quality metric MGS 8020 Methods of Business Intelligence 37 .0% quality metric Leadership Quality Metric Six Sigma Quality Metric Business unit 5 2004 YTD: 79.0% E-Learning unit 2 BusinessQuality Metric 2004 YTD: 81.0% quality metric 2004 Target: 80.0% 40 30 20 50 60 70 80 20 30 40 50 60 70 80 10 90 10 90 0 100 0 100 Business77.0% quality metric 2004 Target: 80.Sample quality indicator metrics 40 30 20 50 60 70 80 10 20 30 40 50 60 70 80 20 30 40 50 60 70 80 10 90 90 10 90 0 100 0 100 0 100 Business unit 1Metric Customer Service Quality 2004 YTD: 83.0% 4 unit 2004 YTD: 2004 Target: 80.

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